Oil rises to near $107 after US crude supply drop

Oil prices rose to near $107 a barrel Wednesday in Asia after a report showed US crude supplies fell unexpectedly, a sign demand may be improving.

Oil prices rose to near $107 a barrel Wednesday in Asia after a report showed US crude supplies fell unexpectedly, a sign demand may be improving.

Benchmark oil for May delivery was up 52 cents to $106.59 a barrel at midday Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell $2.49 to settle at $106.07 per barrel in New York on Tuesday after Saudi Arabia said it could pump more oil to cover any shortages.

Brent crude for May delivery was up 12 cents at $124.24 a barrel in London.

The American Petroleum Institute said late Tuesday that crude inventories fell 1.4 million barrels last week, breaking a two-month trend of growing supplies. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 2.1 million barrels.

Saudi Arabia, the world's largest crude producer, said Tuesday it can quickly boost output by 25 percent if there is a sudden disruption in global supplies. Crude has jumped from $75 in October as traders worry a military conflict over Iran's nuclear program could cut that country's crude exports.

The European Union and the U.S. have imposed sanctions that make it tougher for Iran to sell its oil. In response, Iran has threatened to block oil shipments in the Strait of Hormuz, through which a fifth of world's oil supplies pass.

Kuwait said Tuesday it is increasing crude production and that Iran has assured its neighbors that it won't block the vital waterway.

"The Saudis have been cranking up output, presumably in an attempt to dampen further price increases," energy consultant and trader Ritterbusch and Associates said in a report. However, "increased output won't necessarily reduce the Iranian risk premium."

In other energy trading, heating oil was up 0.7 cent at $3.26 per gallon and gasoline futures gained 0.5 cent at $3.36 per gallon. Natural gas fell 0.3 cent at $2.33 per 1,000 cubic feet.